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When it comes to keeping financial documents, a policy of "better
safe than sorry" often makes for a messy and disorganized office.
Professional organizer Regina Leeds had a client who had been
traumatized by an IRS audit. As a result, she saved
everything.

"Every billing statement, every letter, every receipt– I couldn’t
get her to part with a single piece of paper," says Leeds, author
of One Year to an Organized Financial Life (Da Capo Press, 2008).
"She had boxes of receipts going back decades."

While Leeds says there are financial documents
you should keep for life, most can be held three years or less.
Here are some quick guidelines on how long to hold the most
common small business financial documents:

Safe to Shred
Unless it shows proof of a deductible expense, many documents and
receipts can be shredded monthly or annually, says Leeds. For
entrepreneurs, these include:

ATM receipts and deposit slips after they’ve been reconciled
with your bank statement

Monthly and quarterly bank statements if year-end statements
are received

Keep for
Three Years Material that
supports tax returns should be saved for three years. Leeds says
this might include:

As businesses become more paperless, receipts and statements are
often delivered online. Some information is available for a
limited time, however. Make sure you check with your account
holder to understand its policy, and save or print documents that
might be needed in case of an audit.

While three years is standard,
according to the IRS, it can perform an audit up to six years
after taxes are filed if a "substantial error" is suspected. In
the case of fraud, there is no limitation on an audit. Leeds says
if you are worried about being audited beyond the three-year
limit, you should hold your documentation longer.

The IRS recommends keeping filed state and federal tax
returns for six years; Leeds says she saves her indefinitely for
"peace of mind"

Payroll records

Documents To Be Kept Indefinitely
Greg Jones, CEO of Bookkeeping Express, a franchise
bookkeeping service for small businesses, says documents that
are relevant to business operations and assets should be
stored indefinitely. These include:

Partnership documents

Contractual agreements, such as vendor relationships,
marketing, or commission and royalty structures

Property records, including intellectual property, for as
long as you own the asset plus three years after year of the tax
return that includes its sale

Deeds and titles

He adds that you should check with your financial or tax advisor
for details specific to your situation as rules change and can be
industry- or location specific.

In preparation of year-end tax filing, Leeds suggests that small
business owners set up a system using file folders organized by
category.

"Most businesses will have a file marked 'Operating Expenses,'
'Invoices,' 'Clients' and perhaps 'Payroll,'" she says. "It's
easy to cull year-end figures for your CPA or bookkeeper by
simply pulling folders out of the file and replacing them with
new ones each January."